Total Return: The Most Important Dividend ETF Metric

19 Mar 2025 - Investing

When researching high-yielding dividend ETFs, potential investors often encounter a barrage of metrics and terms like “dividend yield,” “NAV erosion,” “price appreciation,” and “rights offerings.” These are critical factors to understand, but too often, investors overlook — or fail to prioritize — the most essential metric for evaluating an ETF: Total Return.

What is Total Return?

Total return measures an ETF’s overall performance by combining its price change with dividends reinvested through a DRIP (Dividend Reinvestment Program). This figure is typically expressed as a percentage, calculated by dividing the total gain by the starting price. For example, if an ETF’s price rises from $100 to $105 and pays $2 in dividends that are reinvested, the total return is 7%. You can check an ETF’s total return under the “Performance” tab on Morningstar.com for any given fund. That said, past performance doesn’t guarantee future results — a key reminder for any investor.

The goal? Find ETFs with total returns that beat the market index, like the S&P 500. Unfortunately, many investors online promote ETFs that lag far behind the index. In such cases, you’d be better off buying an index fund directly. Studies consistently show that only a small fraction of retail investors (and even hedge fund managers) outperform the indexes over the long haul. Investing in underperforming ETFs is a guaranteed way to fall short.

The Pitfall of Indexed Dividend ETFs

Some investors turn to indexed dividend ETFs, which track the market while paying dividends — sometimes impressively high ones. I’m skeptical of their value. If you reinvest those dividends just to match the index’s 7-12% average annual growth, you’re not actually using the income. Without reinvestment, you’ll underperform the market. So why bother with high yields you can’t use? To me, paying taxes on dividends that just get funneled back into the ETF feels like a losing deal. I’d rather invest in something that grows without the tax drag of “unusable” dividends.

Take BRK.B (Berkshire Hathaway Class B), for instance. It pays no dividends — meaning no income taxes — and has outperformed the S&P 500 since its inception. It’s one example of how you can aim for that 7-12% growth (or better) without the unnecessary tax headache. There are other options out there, and I encourage readers to do their own research.

YieldMax ETFs: My Strategy

High-yielding YieldMax ETFs play a big role in my portfolio, delivering weekly passive dividend income. Unfortunately there’s a lot of misinformation and bad advice regarding these funds. YieldMax manages 45 ETFs, yet when I checked their total returns on Morningstar.com, only a handful outperform the index. Many underperform significantly, often due to NAV erosion eating into gains despite those high yields.

The outperformers at the time of writing include: MSTY, NVDY, CONY, PLTY, NFLY, FBY, SQY, BABO, SNOY, AMZY, and YMAG. Some of these are in my personal portfolio and are worth a look if you’re considering YieldMax. Still, an ETF’s total return is always changing, and past performance does not dictate future results, so investors are encouraged to do their own research before investing.

Wrapping Up

Focusing on total return cuts through the clutter of ETF metrics. It’s not just about chasing the highest yield, instead it’s about prioritizing usable income and minimizing unnecessary taxes. Let me know your thoughts or questions in the comment section below.